Monday, 31 October 2016

I estimate the effects of removing low-income youth with disabilities from Supple- mental Security Income (SSI) on the level and variance of their earnings and income in adulthood. Using a regression discontinuity design based on a 1996 policy change, I find that removed SSI youth earn on average $4,000 annually, an increase of just $2,600 relative to those who remain on SSI, and the volatility of their income quadru- ples. Back-of-the-envelope calculations suggest that up to one-quarter of the value of SSI to recipients comes from its income stabilization effects and the other three-quarters from its income supplementation effects.

The impacts of choice in public services are controversial. We exploit a reform in the English National Health Service to assess the impact of relaxing constraints on patient choice. We estimate a demand model that explicitly captures the referral constraints imposed on patients to evaluate whether removing constraints on choice increased the demand elasticity faced by hospitals. Using data for an important surgical procedure we find that patients became more responsive to clinical quality. The increased demand responsiveness led to a modest reduction in mortality by re-allocating patients and a substantial increase in patient welfare. The elasticity of demand faced by hospitals increased substantially post-reform, giving hospitals stronger incentives to improve their quality of care. Finally, we find evidence that hospitals responded to the enhanced incentives by improving quality. The results suggests greater choice can enhance quality.

Saturday, 15 October 2016

Unsurprisingly some people in the UK and America are disenchanted with democracy and are casting about for alternatives. One is epistocracy, meaning rule of those who understand. Specifically, the idea is to restrict the vote to qualified voters – say, by having some kind of exam. Jason Brennan argues for this trenchantly in his book Against Democracy. Chapter 3 is called “Ignorant, Irrational, Misinformed Nationalists”. He is refreshingly relaxed about offending the Left Behind.

Yes, voters are ignorant and misinformed. No, the solution is not restricting the franchise.

The cause of voter ignorance was well put by Joseph Schumpeter in Capitalism, Socialism and Democracy. The private citizen “is a member of an unworkable committee, the committee of the whole nation, and this is why he expends less disciplined effort on mastering a political problem than he expends on a game of bridge.” In other words, my vote will never decide an election, so I do not spend much time thinking about how to vote.

Notice that this has nothing to do with my brain power. In fact, Schumpeter uses a highly qualified professional as an example:

We need only compare a lawyer’s attitude to his brief and the same lawyer’s attitude to the statements of political fact presented in his newspaper in order to see what is the matter. In the one case the lawyer has qualified for appreciating the relevance of his facts by years of purposeful labor done under the definite stimulus of interest in his professional competence…. In the other case, he has not taken the trouble to qualify; he does not care to absorb the information or to apply to it the canons of criticism he knows so well how to handle; and he is impatient of long or complicated argument.

The problem of political ignorance is not lack of ability. It is lack of incentives. I have a PhD in political science. For my PhD, I mastered the intricacies of some obscure Californian referendums. At the same time, I certainly had no idea about, say, the size of the UK defence budget. Why the difference? Because a thesis on referendums would get me a job. Knowing the size of the defence budget would help me decide if it should be increased or decreased. This was of no use to me.

OK, but surely smart, informed people know more about politics than stupid uninformed people. If we could aggregate all those smart people’s opinions, wouldn’t we be better off than if we also added all the noise from the uninformed people?

No. The problem is not one of information aggregation, but of information production. The plans for Obamacare were not lying around in different people’s heads, waiting to be put together. They were created by a few people’s deliberate effort, working twelve hour days. This kind of work is subject to what computer programmers call the mythical man-month. The full-time effort of a few cannot be replaced by the leisure hour attention of a million, no matter how clever the million.

In one part of Brennan’s argument he appeals to economists’ expertise on immigration:

...the consensus among published economic work on immigration is that the restrictions on labor mobility introduced by mostly closed borders is the single most inefficient thing governments do. They estimate, on average, that the deadweight loss of these restrictions is around 100 percent of world product—that is, that we should be at around $140 trillion in world product, but we are only at $70 trillion, because of immigration restrictions…*

It is extremely plausible that at the margin, less restricted migration could make a lot of poor people richer. The idea that we could double world GDP by getting rid of all these restrictions is bullshit. Nobody has a clue what would happen if we did that. The models economists use do not include political instability or cultural change. We have no idea how to predict or value those outcomes. In France, after recent terror attacks by people who entered Europe posing as refugees, there is an ongoing state of emergency and a fascist party riding high in the polls. What is the cost of that? I make this point not to argue against open borders, but against delusions of expertise.

Those who consider themselves informed are often narrow-minded zealots, or nerds who can’t see beyond their assumptions. Restricing the vote to them would leave politics just as dumb, but more extreme.

Brennan thinks democracy is like passengers voting on how to fly the plane. But epistocracy is like restricting that vote to First Class passengers. A better solution is to have a pilot. You might then want a way to get rid of a pilot who is drunk, suicidal or has joined Islamic State.

People are not politically very bright. You and me included. They are generally able, however, to watch someone debate for half an hour and decide what they think of him. This requires common sense and judgment, not expertise. Democracy should require no more.

Today’s problems with democracy are as much about the supply side as the demand side. Stop asking “why do people support Trump?” Ask, how did the political system let this demagogue emerge? The answer seems to be that party elites lost control of the Republican nomination process. Democracy works best when highly-motivated professionals are held to account by those they serve. We should work on that angle. Direct democratic nonsense, stuff like reading Tweets out in Prime Minister’s Questions, is a distraction. So is epistocracy.